The month of March 2020 has seen increasing uncertainty in relation to the property market in NSW and Australia wide. Not only is there likely to be dramatic changes to buyer confidence, borrowing ability, auction clearance rates and as a result, property prices, there is also the likelihood that property transactions already on foot may be affected and settlements delayed.
Each contract for sale of land in NSW stipulates a date by which settlement is required to take place. In the previous weeks there have been increases in banks processing times as they move to operate on skeleton staff, therefore affecting settlement deadlines. Furthermore, purchasers, vendors and guarantors may be required to self-isolate/quarantine impacting the ability of settlement documentation to be signed. Moving forward, as the economy slows, people may experience job losses or pay cuts which affect borrowing ability.
These factors may all lead to both purchasers and vendors being unable to settle in accordance with the contract for sale.
The consequences if a purchaser is unable to settle
If a purchaser is not able to settle on the date required under the contract, the vendor, subject to the terms of the contract, may charge interest on the purchase price for each day that settlement is delayed and also issue a Notice to Complete. A Notice to Complete is formal notice requiring the purchaser to complete within the notice time frame (generally 14 days).
In the event that the purchaser is not able to settle within the notice timeframe, the vendor may be able to terminate the contract and retain the purchaser’s deposit. Furthermore the standard form NSW Law Society Contract provides that should the vendor resell the property in the following 12 months and the deficiency between the purchase prices is greater than the deposit forfeited, the vendor can sue the purchaser to recover the additional losses.
Should the property market experience drastic falls in prices as a result of COVID-19, then the defaulting purchaser’s liability to vendors will not be limited to the deposit forfeited and they may experience further action from vendors to recover the additional losses suffered.
The consequences if a vendor is unable to settle
In the event that the vendor is not able to settle on the date required under the contract, the purchaser can also issue the vendor a Notice to Complete. This gives the vendor an additional 14 days to rectify their default in not being able to settle on time, failing which the purchaser may terminate the contract and recover their deposit and sue for losses suffered.
How can your contracts be drafted to provide protection in this time of increasing uncertainty?
Property contracts not yet entered into may be drafted to include clauses that give either the vendor or the purchaser the right to delay settlement without penalty or risk of termination should one of the parties be required to self-isolate or quarantine as a result of either the government or a medical practitioner’s orders. The downside of these clauses is the uncertainty that it brings as to when the settlement will eventuate.
Property contracts may also contain clauses which give a party the right to rescind the contract should one party die or lose capacity prior to the settlement date. This would enable a party to elect that the contract be brought to an end with the deposit returned to the purchaser in the case of death or loss of capacity.
Please note that the information contained in this article is of a general nature only. If further policies or legislative changes are introduced by the government in response to COVID-19, then the rights and remedies of purchasers and vendors may change as a result. Should your property transaction have been impacted by COVID-19 we recommend you obtain legal advice.
If you have any questions in relation to your property transaction, please do not hesitate to contact the team at Kells.
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